What is Inflation

Supply of Money

Like other commodities the price of money is affected by its supply. An increase in supply will cause an increase in price level. An increase in average price is usually referred to as Inflation.

This belief that changes in the money supply causes changes in the rate of inflation is associated particularly with those economics that are referred to as Monetarists. However there are economists who do not agree to this point of view. We will discuss it later on in the causes of inflation.

Inflation is a general and sustained rise in the level of prices of goods and services over a period of time.

Types of Inflation

Mild Inflation: Low level of inflation where the prices will increase up to 5%.

Creeping Inflation: A more serious economic situation where the prices increase by 10%.

Hyperinflation: Also known as galloping inflation. It is a serious economic condition where the prices increase at a very high rate and the value of money falls. Recent, Zimbabwe experienced hyperinflation (165000%).